Gartner warns of 'inflationary pressure' risk to global public cloud spending

Gartner is warning that inflationary pressure could negatively affect its worldwide spending on public cloud services forecast, which presently suggests spending in this area is set to grow by more than 20% in 2023.

The IT market watcher said global end-user spending on public cloud services is set to hit close to $600bn next year, up from $490.3bn in 2022, but with enterprises finding themselves under pressure to cut costs, the amount they spend on public cloud could actually go down.

“Current inflationary pressures and macroeconomic conditions are having a push-and-pull effect on cloud spending,” said Sid Nag, vice-president analyst at Gartner. “Cloud computing will continue to be a bastion of safety and innovation, supporting growth during uncertain times due to its agile, elastic and scalable nature.

“Yet, organisations can only spend what they have. Cloud spending could decrease if overall IT budgets shrink, given that cloud continues to be the largest chunk of IT spend and proportionate budget growth.”

The comments come several days after public cloud giant Amazon Web Services (AWS) reported its lowest annual revenue growth rate in its history, with the firm citing customer cost cutting as a factor.

Despite Nag’s notes of caution, he said the pace of cloud migration is showing no signs of stopping, with the demand for infrastructure-as-a-service (IaaS) capabilities set to “naturally continue to grow” as businesses look to modernise their IT estates, minimise risk and optimise costs.

“Moving operations to the cloud also reduces capital expenditures by extending cash outlays over a subscription term, [which is] a key benefit in an environment where cash maybe critical to maintain operations,” he added.

In cloud segment terms, IaaS is forecast to experience the highest amount of end-user spending growth in 2023, with enterprises expected to spend more than $150bn in this area, up from $115bn in 2022. This equates to an annual growth rate of 29.8%.

Gartner said it expects platform as a service (PaaS) and software as a service (SaaS) to see the most “significant impacts” from inflation because of staffing and margin protection challenges, but both segments will also see continued growth.

To that point, the PaaS segment is expected to grow by 23.2% to $136bn in 2023, and the SaaS segment is forecast to grow by 16.8% to $195bn next year.

“Higher-wage and more skilled staff are required to develop modern SaaS applications, so organisations will be challenged as hiring is reduced to control costs,” said Nag. “But since PaaS can facilitate more efficient and automated code generation for SaaS applications, the rate of PaaS consumption will consequently increase.”

Looking ahead, he said that despite growth, profitability and competition pressures, cloud spending should continue to rise due to perpetual cloud usage.

“Once applications and workloads move to the cloud, they generally stay there, and subscription models ensure that spending will continue through the term of the contract and most likely well beyond. For these vendors, cloud spending is an annuity – the gift that keeps on giving,” Nag added.